Tag Archives: articles on fraud

Tax refund fraud has become a growing concern for taxpayers, state and local governments, and the federal government. Tax departments are implementing strategies to prevent and detect for the 2015 tax season.

The Ohio Department of Taxation (ODT) is implementing additional safeguards this tax season that will delay state tax refunds. The ODT is anticipating an increase in identity theft directly affecting tax fraud.

Last year, ODT stopped an unprecedented number of fraudulent income tax returns seeking to steal refunds totaling more than $250 million. In previous years, attempted tax fraud averaged roughly $10 million.

In order for the ODT to detect refund fraud due to identity theft, an additional up-front filter will now be applied to all tax refund requests to examine the demographic information reported on a return. This examination will then assign a “probability of fraud” factor that will determine how the return is then further processed by ODT.

If a return is pulled for review, ODT’s additional security measures will require some taxpayers to successfully complete an Identification Confirmation Quiz before the return will continue to be processed. If a taxpayer’s return is selected for identity confirmation they will receive a letter from ODT directing them to http://www.tax.ohio.gov. This will provide access to the quiz and detailed instructions on how to complete it. Taxpayers without access to the Internet will be directed to call ODT at 1-855-855-7579.

Processing of returns for refunds will be delayed due to these additional screening and security measures. According to the ODT, electronic returns requesting a refund may take up to 15 days to be direct deposited and paper returns could take up to 30 days for a physical check to be mailed out.

Not only is the ODT taking aggressive action on identity theft and tax fraud but so is the Internal Revenue Service (IRS). For 2015, the IRS is introducing new procedures which will address some of the issues. Effective 2015 tax season, the IRS is limiting the number of refunds directly deposited into a single financial account or onto a prepaid debit card. Therefore, any of the subsequent refunds will be issued by paper check and mailed to the taxpayer. Exceptions will not be made.
Visit the Taxpayer’s Guide to Identity Theft for helpful tips to protect yourself from identity theft or fraud.

With so many fraud cases in the spotlight recently it’s hard to figure out how to protect yourself. There have been many cases of credit card fraud, employee embezzlement, money laundering and so much more. With companies losing astronomical sums to fraud every year this begs the question: what steps are being taken to prevent fraud in the future and learn from past mistakes?

Top in the news lately is the recent identity theft at Target. It has not yet been released exactly how this theft occurred but, generally, thieves are able to hack into a company’s databases and steal the information transmitted from a credit card’s metal strip when swiped on a card reader. Because of this, millions and millions of people are put on alert every year that their credit and debit card accounts have been compromised.

Another large fraud area is financial statement fraud; the examples that people first relate to are usually Enron and WorldCom. This fraud is often hard to detect because it is usually perpetrated by the company’s’ executives in an effort to report a better financial position than actually exists. This type of fraud is usually meant to deceive stockholders, owners, investors, banks, etc.

Small-scale fraud is most typically dealt with in companies. For instance, maybe “borrowing” $100 out of the petty cash drawer and paying it back on pay-day. Or maybe even forging an invoice so that the employee can collect the extra payment. There are several different ways that employees can embezzle money from their employers and thieves are getting more and more creative. Small-scale fraud like this is most often caught by the employer themselves so managers and supervisors need to be vigilant in taking note of this happening and ensuring that a swift punishment is delivered.

What steps are in place to avoid these frauds happening in the future? Credit card information theft is on a steep decline in Europe. Why? Because they have shied away from using metals strips in credit and debit cards and have, instead, an electronic chip embedded into them. The current stripe technology used in the United States is outdated; it remits the same information at the point of sale every time the card is swiped. The chip is state of the art and every time the card is swiped information is encrypted and as a result the information remitted is constantly changing. Fear not, chip technology is coming! The US will soon be adopting the chip technology and has a 2015 implementation deadline.

As a result of the large financial statement frauds committed in the past, financial reporting is much more regulated. Transparency is the name of the game and auditors are now required to do much further testing and disclose much more than they were pre-Enron.

Simple checks and balances and a segregation of duties is the most effective way of preventing and detecting small-scale fraud. Think about it, it’s much easier form someone to steal money from a company if they process invoices, approval invoices, and write checks vs. a different people being responsible for each job. In some companies it may not make financial sense to separate these positions (the company may be too small) so companies should do a cost/benefit analysis to determine their best practices.

Our firm also offers a FREE service to our clients called End Fraud Now. This service provides an anonymous and confidential way for employees and other business partners to report internal theft, bribery, harassment, and other illegal activities that could cause a loss to your company or subject it to legal exposure. Check out the website today!

The moral of the story is that fraud is out there and everyone needs to not only be aware of it but actively preventing it. The government is stepping in and putting safeguards in place but that doesn’t mean that businesses shouldn’t be doing things independent of this. Putting a small amount of internal controls in place will save a company future time, energy, and money.

I know that many of you who read our blog may not necessarily be business owners or involved at all in making sure duties are segregated. However, you may not realize that you are an integral part of what helps segregate duties and organizations and groups may rely on you to help ensure they operate correctly. I have some family members who were involved in situations where proper segregation of duties were not in place and unfortunately fraud occurred. One organization was an athletic club where one employee was in charge of all of the fiscal responsibilities including paying the bills. This person was owed money because the club could not afford to pay their employee over a period of time for his/her services. As a result, this employee decided to take matters into his/her own hands and not pay the clubs expenses, but instead take the amount owed to them by the club and leave. If someone else would have been involved in the club finances, then this employee would not have been able to do this. Another organization, a religious institution, also had a similar fraud situation. The pastor funneled money from the church over a number of years into a side business, which ultimately paid him. Of course the board of the church trusted their pastor and never expected something of this nature to occur. As a result the pastor had full authority and control. It only was uncovered when another situation prompted some of the church members to insist on an audit.

People want to trust others knowing that they will do what is right. All too often it is easy to say, “that’s not for me to worry about,” but everyone is involved in one way or another in some type of club or organization where money involved. Do your due diligence and make sure that the duties are segregated and no one is in a position to commit fraud. Most people that are honest want there to be the correct segregation of duties in place so that no one can be concerned that they are doing something wrong. So do the right thing and make sure that everything is set up correctly and segregation is in place. I am not saying it will not and cannot happen, but it greatly reduces the chance, and should mean you will catch it faster.

So what should you do? There are many different activities surrounding cash, but some key things to think about would be:

The same person that writes the checks should not be able to sign the checks

All checks should be approved by the signer by viewing an invoice or other document.

Ideally a third person would receive the bank statements at a location different than the bills and would question the check signer and check writer on various transactions to show that they are reviewing it.

The same third person should also perform a reconciliation of all cash and credit card accounts.

I was not involved in these clubs and organizations in such a manner that I would have helped with any of this, but I do know people that were, and unfortunately they have now learned that it is best to run the groups in such a way that it greatly mitigates the chance of fraud. Where can you apply this today?